Monday, December 23, 2019

What do Economists Know?

Economist Tyler Cowen posted a list of topics economists ought to be investigating, from "Why is life expectancy so long in Hong Kong?" to "What accounts for cultures of excellence?" One of the topics is:
What should [Indonesian president Joko] Widodo do? Indonesia is a large, populous middle-income country. It faces no major near-term security threats. It has a small manufacturing base and no major non-commodity export sectors. What is the best non-bureaucratic 10 page economic development briefing document and set of prescriptions that one could write for Indonesia’s president? For Indonesia, substitute Philippines, Chile, or Morocco.
Economists do not know the answer to this question; there is no formula for raising the income of a stable, middling nation. Nor do they know the answer to most of the other important questions facing policy makers: How could the US or Britain preserve manufacturing jobs without severely hurting the rest of the economy? How could Russia promote its middle class? How can west African nations develop modern economies? Etc.

This is what makes me think that economists don't actually understand the economy very well. Many of them promote laissez-faire policies, and that did work fairly well in Hong Kong and Chile, but the most spectacular examples of modern growth (Japan, Taiwan, South Korea, and now China) were in nations with very active government planners.

My question that economists should investigate would be, how did the East Asian nations do it? In particular, what did the central planners actually do, and why did it work? And what role did culture play?


G. Verloren said...

Economist Tyler Cowen posted a list of topics economists ought to be investigating, from "Why is life expectancy so long in Hong Kong?" to "What accounts for cultures of excellence?"

Why does Cowen think economists have incentive to ask those kinds of questions?

An economist's job is to make reasonably accurate predictions about the current state of the economy and how that state might change. They're weather forcasters.

Would knowing the causes of increased life expectancy or cultures of excellence be useful for predicting certain kinds of economic change? Maybe.

But there's little intrinsic connection between the economy running smoothly overall and people living longer or better. You can have a booming economy built on misery. And in many ways, we already do. And that economy can be stable and predictable, and economists can do their jobs totally unconcerned over the human element.

Capitalism inherently trends toward wealth and power accumulating at the top, because that's the basic foundation of the entire philosophy - acquire money, then use that money to acquire more money.

The only earthly way we're ever going to have a society in which life expectancy, a culture of excellence, etc, flourish is if we choose to actively prioritize those things over the acquisition of wealth. We need to convince the average person to value improving life for everyone over enriching themselves. Because in a society where the average person is greedy and selfish, everything falls apart.

G. Verloren said...

Quick clarification:

When I say that economists are supposed to make reasonably accurate predictions about the state of the economy, that's a very relative statement.

What matters to an economist isn't that they're right all the time - what matters is convincing other people to prefer buying their services over those of competing economists. You don't need to be 100% correct in your predictions, you just need to be slightly more correct than the next guy.

And even that isn't strictly true. You don't need to actually BE slightly more correct than the next guy, you just need to SEEM slightly more correct. Ultimately your reputation matters more than your actual ability.

No one really understands the economy. The best we've got is economists making vague and hazy guesses that can't really be confirmed or disproven with much certainty because the economy is just so huge and complicated. And the people who know nothing about economics rely on these experts who know next-to-nothing, because their guesses are slightly better than nothing.

It's the blind being led through a mirage filled desert by the myopic one-eyed.